Kerala H.C : No part of the deposits were found to be not genuine and were accepted in the assessment, did not the Appellate Tribunal err in law in sustaining the order imposing penalty u/s 271D

High Court Of Kerala

N. S. S. Karayogam vs. CIT

Assessment Year : 2010-11

Section : 269SS, 271D

Dr. Manjula Chellur, CJ. And A.M. Shaffique, J.

IT Appeal No. 19 Of 2014

February 25, 2014


Dr. Manjula Chellur, CJ. – Heard learned counsel for appellant as well as standing counsel for Revenue.

2. The matter is disposed of on merits.

3. The substantial questions of law which arise for our consideration are:

“(i) Whether, on the facts and in the circumstances of the case and having regard to the principle of law laid down by this Hon’ble Court, in the case of CIT v. P.K. Shamsuedheen in I.T.A. No. 239 of 2011, is the Appellate Tribunal justified in law and facts in confirming the order of the Commissioner of Income Tax (Appeals), Cochin, in I.T.A. No. 4/Alp/CIT(A)-IV/2010-11 and confirming the levy of penalty u/s 271D?

(ii) Did not the Appellate Tribunal err in not following the binding precedence in the decision in Shri P.K. Shamsudheen’s case as well as the decisions of other Hon’ble High Courts of Punjab and Haryana, Rajasthan and Madras, reported in 276 ITR 79 (P & H) (CIT v. Saini Medical Stores), 260 ITR 590 (Raj.) & 303 ITR 99 (Mad.) (CIT v. Lakshmi Trust Co) and 283 ITR 329 (Mad.) (CIT v. Kundrathur Finance & Chit Co.) respectively and dismissing the appeal?

(iii) In the facts and circumstances of the case, and having regard to the fact that no part of the deposits were found to be not genuine and were accepted in the assessment, did not the Appellate Tribunal err in law in sustaining the order imposing penalty u/s 271D?

(iv) Is not the order of the Appellate Tribunal Annexure-F arbitrary and illegal and liable to be set aside?”

4. The undisputed facts that lead to filing of the present appeal are as under:

The appellant-assessee is having several branches of Karayogam. The branch in question is N.S.S. Karayogam No. 1365, said to have been established for the overall welfare of its members of Kakazham/Neerkunnam area. Apparently, it indulges in financial business independently. The appellant assessee was accepting deposits from and financing loans to both members and non-members. Several issues came up for consideration for the above assessment year. But, we are concerned only with one controversy, whether assessee has explained with sufficient reason for receiving cash deposit exceeding Rs. 20,000/- in violation of provisions of Section 269SS of the Income Tax Act. The Assessing Officer, after seeking explanation from the assessee, proceeded with the assessment and imposed penalty. This came to be challenged before the First Appellate Authority and the appeal came to be partly allowed remanding back the matter to the Assessing Officer with specific direction not to consider receipts which were below Rs. 20,000/-.

5. Aggrieved by the same, the appellant-assessee approached the Appellate Tribunal. The Appellate Tribunal, after referring to its earlier order pertaining to ITO v. K.V. George [2013] 36 548 (Cochin – Trib.), proceeded to opine that appellant never raised a contention that there is no banking facility in the locality and further, most of the depositors being pensioners, who were receiving pension through banking channel therefore, such defence was untenable. Confirming the decision of the C.I.T (Appeal), the appeal came to be dismissed. Aggrieved by the same, the assessee is before us contending that Appellate Tribunal did not consider principles of law laid down by various High Courts supporting contentions of the assessee before the Appellate Tribunal.

6. Learned counsel for appellant contends before us that there could be more than one reason why receipt of money was in cash. It could be ignorance, could be non-availability of banking facility in the locality etc. It is not a situation where the assessee never had an opportunity to explain. It is not ignorance of the customers, but it is the ignorance of the assessee who received the money in cash. As pointed out by the First Appellate Authority, there was difference of one crore forty lakhs i.e. variance between the balance sheet and account book produced. This gave rise to a survey by the Department. However, with other issues, we are not concerned.

7. Learned standing counsel arguing for Revenue submits, the only defence raised by assessee at the earliest point of time was ignorance and further contends that ignorance of law cannot be an excuse. So far as the First Appellate Authority for verification of factual situation whether entire cash receipts, which was subject matter of penalty were Rs.20,000/- and above or below Rs.20,000/-, remanded back the matter to the Assessing Officer to verify factual situation while proceeding with the matter afresh. In other words, there is clear direction that all receipts below Rs.20,000/- need not be taken into consideration and only those receipts which are Rs. 20,000/- and above should be taken into consideration. However, going through the orders of Assessing Officer, Appellate Authority and Appellate Tribunal, we do not find any consistency in the explanation of the appellant-assessee. What was the reasonable cause for receiving such amounts in cash in violation of the provisions of Section 269SS? Apparently, several transactions are beyond and above Rs. 20,000/-. One of the defence was they were adopting cash system of accounting right from the beginning, which was never objected to. Therefore, they were receiving amounts remitted in cash, especially as the person who was in charge of the branch was a person with matriculation qualification, and was not well versed with the Income-tax Act. Unfortunately, an assessee which is dealing in finance activity cannot take such a stand as the assessee is expected to know the person who maintains the day-to-day administration of the society, including receipt of amounts. So far as the present controversy is concerned, as indicated by learned standing counsel for Revenue, the case which was relied upon by the Tribunal, i.e. K.V. George’s case (supra), came up for consideration before this Court in I.T.A. No. 279/2013, wherein scope of Sections 269SS and 271D was discussed with reference to various judgments of other High Courts and also Supreme Court. While referring to scope of Section 269SS read with Section 271D, it was clearly held that the only consideration would be what was the reasonable cause for receiving such a huge amount by way of cash or what was the reason for not receiving the loan or deposit by way of account payee cheque or demand draft a matter to be explained by the assessee. In other words, the burden is on the assessee to establish what was the reasonable cause for not receiving the loan or deposit by way of account payee cheque or a demand draft. It is not a single transaction but several transactions which have to be explained by the appellant assessee. Though there is no specific consistent stand as stated above on behalf of the appellant-assessee, since the matter is remitted back to the Assessing Officer for fresh consideration, so far as the factual situation whether all transactions were Rs. 20,000/- and above, we are of the opinion, no prejudice would be caused to Revenue if an opportunity is given to the appellant- assessee to explain such transactions which are Rs. 20,000/- and above. After giving an opportunity to the appellant assessee, the Assessing Officer shall proceed with the matter and decide controversial issue either accepting or rejecting the explanation depending upon the nature of explanation.

Accordingly, the appeal is disposed of.

[Citation : 364 ITR 81]